Moody's surprise withdrawal of credit ratings for 11 Chinese property and investment firms sent local and Hong Kong stock markets tumbling on Monday. Investors are now speculating about a looming financial crunch.
The most unexpected rating removal was for China Great Wall Asset Management, a major state-owned bad-debt manager established in 1999 to handle Agricultural Bank's bad loans. Moody's eliminated its Baa3 score, just shy of junk territory, citing "business reasons" without detailed explanation.
This move garnered enough attention on Monday to stall the rebound in Hong Kong and mainland Chinese stock markets, both dipping by nearly 1%. Moody's first removed Great Wall's rating on Friday, later in the day shocking markets by withdrawing ratings for 10 property companies, including Logan Group, Ronshine China, and Zhenro Properties Group.
Western analysts interpret this decision as a sign of looming defaults for property firms. The withdrawal of Great Wall's rating suggests a growing chance of the asset manager handling a new wave of bad debts from the property sector.
This action follows Moody's December decision to downgrade its outlook for Chinese sovereign bonds to negative, which drew criticism from the government. Moody's had advised its China-based staff to work from home ahead of this announcement, reported the Financial Times.
The 2021 collapse of Evergrande, one of China's largest homebuilders, already rocked the market. However, the surprising Hong Kong court decision to order Evergrande's liquidation a month ago raised further uncertainty, particularly regarding its enforcement in China.
Moody's previously stated that Evergrande's liquidation is credit negative for Greater China's property sector, suggesting Friday's decision forecasts even graver circumstances. It implies that the 11 companies losing their ratings may be just the beginning of a series of painful decisions.
Fitch's January statement revealed Great Wall's near-junk bbb "Long Term Issuer Default Rating" (IDR), indicating a significant downgrade since April. Fitch attributed the downgrade to reduced government support expectations for government-controlled asset management companies.
